Company Quick10K Filing
Quick10K
Brigham Minerals
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
S-1 2019-03-18 Public Filing
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-05-20 Earnings, Exhibits
8-K 2019-04-23 Enter Agreement, M&A, Shareholder Rights, Officers, Amend Bylaw, Exhibits
8-K 2019-04-17 Enter Agreement, Sale of Shares, Officers, Exhibits
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RVIV Reviv3 Procare 31
DRNE Drone Aviation Holding 26
TRCK Track Group 12
JBBT Jobbot 0
PTLF Petlife Pharmaceuticals 0
PGUS Progreen 0
SCY Scandium International Mining 0
MNRL 2019-06-30
Part I - Financial Information
Item 1. - Financial Statements (Unaudited)
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
Item 4. - Controls and Procedures
Part II - Other Information
Item 1. - Legal Proceedings
Item 1A. - Risk Factors
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. - Exhibits
EX-31.1 brigham-section302exh311x1.htm
EX-31.2 brigham-section302exh312x1.htm
EX-32.1 brigham-section906exh321x1.htm
EX-32.2 brigham-section906exh322x1.htm

Brigham Minerals Earnings 2019-06-30

MNRL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q210-q.htm 10-Q Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 001-38870
Brigham Minerals, Inc.
(Exact name of registrant as specified in its charter)
Delaware
83-1106283
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
5914 W. Courtyard Drive, Suite 150
Austin, Texas
78730
(Address of principal executive offices)
(Zip code)
(512) 220-6350
(Registrant’s telephone number, including area code)
___________________
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Class A common stock, par value $0.01
 
MNRL
 
New 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 x No o
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 such files). Yes x No o
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 o
Accelerated filer o
Non-accelerated filer x 
Smaller reporting company o
 
Emerging growth company x

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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The registrant had 21,997,198 shares of Class A common stock and 28,777,802 shares of Class B common stock outstanding as of July 31, 2019.
 



BRIGHAM MINERALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


GLOSSARY OF TERMS
The following are abbreviations and definitions of certain terms used in this document, which are commonly used in the oil and natural gas industry:
Term
 
Definition
Basin
 
A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.
Bbl
 
One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.
Boe
 
One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities.
Boe/d
 
One Boe per day.
British thermal unit or Btu
 
The quantity of heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion
 
Installation of permanent equipment for production of oil, natural gas or NGLs, or, in the case of a dry well, to reporting to the appropriate authority that the well has been abandoned.
Development costs
 
Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil, natural gas and NGLs. For a complete definition of development costs, refer to the SEC’s Regulation S-X, Rule 4-10(a)(7).
Development project
 
The means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.
Development well
 
A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.
Differential
 
An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.
Drilled but Uncompleted Well
 
A well that an operator has spud but has not yet begun hydraulic fracturing or completion operations.
Gross acres or gross wells
 
The total acres or wells, as the case may be, in which a mineral or royalty interest is owned.
MBbl
 
One thousand barrels of crude oil, condensate or NGLs.
MBoe
 
One thousand Boe.
Mcf
 
One thousand cubic feet of natural gas.
Mcf/d
 
One Mcf per day.
MMBtu
 
One million British thermal units.
MMcf
 
One million cubic feet of natural gas.
Net royalty acre
 
Mineral ownership standardized to a 12.5%, or 1/8th, royalty interest.
Net well
 
The percentage of net revenue interest an owner has out of a gross well. For example, an owner who has an 25% royalty interest in a single well owns 0.25 net wells.
NGLs
 
Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as liquefied petroleum gas and natural gasoline.
NYMEX
 
The New York Mercantile Exchange.
Operator
 
The individual or company responsible for the development and/or production of an oil or natural gas well or lease.
Possible Reserves
 
Reserves that are less certain to be recovered than probable reserves.
Probable reserves
 
Reserves that are less certain to be recovered than proved reserves but that, together with proved reserves, are as likely as not to be recovered.
Production costs
 
Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. For a complete definition of production costs, refer to the SEC’s Regulation S-X, Rule 4-10(a)(20).





ii


GLOSSARY OF TERMS (continued)

Term
 
Definition
Prospect
 
A specific geographic area that, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Proved reserves
 
Those quantities of oil, natural gas and NGLs that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible-from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations-prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. For a complete definition of proved oil and natural gas reserves, refer to the SEC’s Regulation S-X, Rule 4-10(a)(22).
Realized price
 
The cash market price less all expected quality, transportation and demand adjustments.
Reserves
 
Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
Reservoir
 
A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
Royalty
 
An interest in an oil and natural gas lease that gives the owner the right to receive a portion of the production from the leased acreage (or of the proceeds from the sale thereof), but does not require the owner to pay any portion of the production or development costs on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.
Spot market price
 
The cash market price without reduction for expected quality, transportation and demand adjustments.
Spud
 
Commenced drilling operations on an identified location.
Undeveloped acreage
 
Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil, natural gas or NGLs regardless of whether such acreage contains proved reserves.


iii


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (this "Quarterly Report") includes “forward-looking statements.” All statements, other than statements of historical fact, included in this Quarterly Report regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “may,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions and the negative of such words and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Such statements may be influenced by factors that could cause actual outcomes and results to differ materially from those projected. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this Quarterly Report.

The following important factors, in addition to those discussed elsewhere in this Quarterly Report, could affect the future results of the energy industry in general, and our company in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:

our ability to execute on our business strategies;
the effect of changes in commodity prices;
the level of production on our properties;
risks associated with the drilling and operation of oil and natural gas wells;
the availability or cost of rigs, equipment, raw materials, supplies, oilfield services or personnel;
legislative or regulatory actions pertaining to hydraulic fracturing, including restrictions on the use of water;
the availability of pipeline capacity and transportation facilities;
the effect of existing and future laws and regulatory actions;
the impact of derivative instruments;
conditions in the capital markets and our ability to obtain capital on favorable terms or at all;
the overall supply and demand for oil, natural gas and NGLs, and regional supply and demand factors, delays, or interruptions of production;
competition from others in the energy industry;
uncertainty in whether development projects will be pursued;
uncertainty of estimates of oil and natural gas reserves and production;
the cost of developing the oil and natural gas underlying our properties;
our ability to replace our oil, natural gas and NGL reserves;
our ability to identify, complete and integrate acquisitions;
title defects in the properties in which we invest;
the cost of inflation;
technological advances;
general economic, business or industry conditions; and

iv


certain factors discussed elsewhere in this Quarterly Report.
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.




    

v


PART I — FINANCIAL INFORMATION
Item 1. — Financial Statements (Unaudited)
BRIGHAM MINERALS, INC.

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(Unaudited)
 
 
June 30,
 
December 31,
(In thousands, except share amounts)
 
2019
 
2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
82,727

 
$
31,985

Restricted cash
 

 
474

Accounts receivable
 
20,262

 
20,695

Prepaid expenses and other
 
2,208

 
7,103

Short-term derivative assets
 
162

 
1,057

Total current assets
 
105,359

 
61,314

Oil and gas properties, at cost, using the full cost method of accounting:
 
 
 
 
Unevaluated property
 
244,755

 
228,151

Evaluated property
 
355,563

 
289,851

Less accumulated depreciation, depletion and amortization
 
(41,214
)
 
(27,628
)
Oil and gas properties—net
 
559,104

 
490,374

Other property and equipment
 
5,521

 
5,408

Less accumulated depreciation
 
(3,406
)
 
(3,115
)
Other property and equipment—net
 
2,115

 
2,293

Deferred tax asset
 
9,913

 

Other assets, net
 
1,151

 
45

Total assets
 
$
677,642

 
$
554,026

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS'/MEMBERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
7,173

 
$
5,662

Current portion of debt
 

 
2,188

Total current liabilities
 
7,173

 
7,850

Long-term debt
 

 
168,517

Deferred tax liability
 

 
3,684

Other non-current liabilities
 
51

 
27

Temporary equity
 
611,962

 

Shareholders' and members’ equity:
 
 
 
 
Members’ contributed capital
 

 
208,728

Preferred stock, $0.01 par value; 50,000,000 authorized; no shares issued and outstanding
 

 

Class A common stock, $0.01 par value; 400,000,000 authorized, 21,997,198 shares issued and outstanding at June 30, 2019
 
220

 

Class B common stock, $0.01 par value; 150,000,000 authorized, 28,777,802 shares issued and outstanding at June 30, 2019
 

 

Additional paid-in capital
 
57,719

 
(3,057
)
Retained earnings
 
517

 
168,277

Total shareholders' equity attributable to Brigham Minerals, Inc. and members’ equity
 
58,456

 
373,948

Total liabilities and shareholders' and members’ equity
 
$
677,642

 
$
554,026


The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

1


BRIGHAM MINERALS, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
REVENUES
 
 
 
 
 
 
 
 
Mineral and royalty revenues
 
$
23,049

 
$
14,522

 
$
40,639

 
$
26,386

Lease bonus and other revenues
 
1,480

 
2,367

 
2,155

 
4,586

Total revenues
 
24,529

 
16,889

 
42,794

 
30,972

OPERATING EXPENSES
 
 
 
 
 
 
 
 
Gathering, transportation and marketing
 
1,523

 
912

 
2,637

 
2,007

Severance and ad valorem taxes
 
1,450

 
882

 
2,829

 
1,642

Depreciation, depletion and amortization
 
6,760

 
3,213

 
11,876

 
5,758

General and administrative
 
9,762

 
1,318

 
11,711

 
2,782

Total operating expenses
 
19,495

 
6,325

 
29,053

 
12,189

Income from operations
 
5,034

 
10,564

 
13,741

 
18,783

Gain (loss) on derivative instruments, net
 
73

 
(555
)
 
(612
)
 
(914
)
Interest expense, net
 
(1,270
)
 
(652
)
 
(5,095
)
 
(1,126
)
Loss on extinguishment of debt
 
(6,933
)
 

 
(6,933
)
 

Gain on sale and distribution of equity securities
 

 

 

 
823

Other income, net
 
6

 
6

 
35

 
10

(Loss) income before income taxes
 
(3,090
)
 
9,363

 
1,136

 
17,576

Income tax expense
 
117

 
12

 
307

 
28

NET (LOSS) INCOME
 
$
(3,207
)
 
$
9,351

 
$
829

 
$
17,548

Less: net income attributable to Predecessor
 
(1,590
)
 
(9,351
)
 
(5,092
)
 
(17,548
)
Less: net loss attributable to temporary equity
 
2,941

 

 
2,941

 

Net loss attributable to Brigham Minerals, Inc. shareholders
 
$
(1,856
)
 
$

 
$
(1,322
)
 
$

 
 
 
 
 
 
 
 
 
NET (LOSS) INCOME PER COMMON SHARE
 
 
 
 
 
 
 
 
Basic
 
$
(0.12
)
 
$

 
$
(0.24
)
 
$

Diluted
 
$
(0.12
)
 
$

 
$
(0.25
)
 
$

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
 
Basic
 
17,819

 

 
8,959

 

Diluted
 
41,460

 

 
20,806

 

















The accompanying notes are an integral part of these condensed consolidated and combined financial statements.


2


BRIGHAM MINERALS, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2019
 
2018
 
2019
 
2018
NET (LOSS) INCOME
 
$
(3,207
)
 
$
9,351

 
$
829

 
$
17,548

Other comprehensive income
 

 

 

 

   Unrealized gains (losses) on available for sale equity securities, net
 

 

 

 
141

   Reclassification of gains on sale and distribution of available for sale equity securities
 

 

 

 
(823
)
Other comprehensive income
 

 

 

 
(682
)
COMPREHENSIVE (LOSS) INCOME
 
$
(3,207
)
 
$
9,351

 
$
829

 
$
16,866

Comprehensive income attributable to Predecessor
 
(1,590
)
 
(9,351
)
 
(5,092
)
 
(16,866
)
Comprehensive loss attributable to temporary equity
 
2,941

 

 
2,941

 

Comprehensive loss attributable to shareholders
 
$
(1,856
)
 
$

 
$
(1,322
)
 
$




































The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

3


BRIGHAM MINERALS, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' AND MEMBERS' EQUITY
(Unaudited)
 
 
Members' Contributed
 
Class A Common Stock
 
Class B Common Stock
 
Additional Paid-In
 
Retained
 
Total Shareholders' and Members'
(In thousands)
 
Capital
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Equity
Balance—December 31, 2018
 
$
208,728

 

 
$

 

 

 
$
(3,057
)
 
$
168,277

 
$
373,948

Net income attributable to shareholders
 

 

 

 

 

 

 
534

 
534

Net income attributable to Predecessor
 

 

 

 

 

 

 
3,502

 
3,502

Balance—March 31, 2019
 
$
208,728

 

 
$

 

 
$

 
$
(3,057
)
 
$
172,313

 
$
377,984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to shareholders
 

 

 

 

 

 

 
314

 
314

Net income attributable to Predecessor
 

 

 

 

 

 

 
1,590

 
1,590

Balance prior to corporate reorganization and IPO
 
$
208,728

 

 
$

 

 
$

 
$
(3,057
)
 
$
174,217

 
$
379,888

Exchange of Units of Brigham Minerals Holdings, LLC for Class A Common Stock and Class B Common Stock
 
(208,728
)
 
5,322

 
53

 
28,778

 

 
380,205

 
(171,530
)
 

Issuance of common stock in IPO, net of offering cost
 

 
16,675

 
167

 

 

 
274,746

 

 
274,913

Deferred tax asset arising from the IPO
 

 

 

 

 

 
13,664

 

 
13,664

Reclassification of non-controlling interests to temporary equity
 

 

 

 

 

 
(518,000
)
 

 
(518,000
)
Share-based compensation expense
 

 

 

 

 

 
7,505

 

 
7,505

Net income post-IPO
 

 

 

 

 

 

 
(2,170
)
 
(2,170
)
Adjustment of temporary equity to redemption amount
 

 

 

 

 

 
(97,344
)
 

 
(97,344
)
Balance—June 30, 2019
 
$

 
21,997

 
$
220

 
28,778

 
$

 
$
57,719

 
$
517

 
$
58,456

 
 
Members' Contributed
 
Class A Common Stock
 
Class B Common Stock
 
Accumulated Other Comprehensive
 
Retained
 
Total Shareholders' and Members'
(In thousands)
 
Capital
 
Shares
 
Amount
 
Shares
 
Amount
 
Income
 
Earnings
 
Equity
Balance—December 31, 2017
 
$
166,030

 

 
$

 

 
$

 
$
682

 
$
135,462

 
$
302,174

Contributions
 
21,625

 

 

 

 

 

 

 
21,625

Distributions
 
(4,246
)
 

 

 

 

 

 

 
(4,246
)
Other comprehensive income
 

 

 

 

 

 
(682
)
 

 
(682
)
Net income
 

 

 

 

 

 

 
8,197

 
8,197

Balance—March 31, 2018
 
$
183,409

 

 
$

 

 
$

 
$

 
$
143,659

 
$
327,068

Contributions
 
24,386

 

 

 

 

 

 

 
24,386

Net income
 

 

 

 

 

 

 
9,351

 
9,351

Balance—June 30, 2018
 
$
207,795

 

 
$

 

 
$

 
$

 
$
153,010

 
$
360,805





The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

4


BRIGHAM MINERALS, INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended June 30,
(In thousands)
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
829

 
$
17,548

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
 
11,876

 
5,758

Share-based compensation expense
 
6,495

 

Loss on extinguishment of debt
 
6,933

 

Amortization of debt issue costs
 
291

 
74

Deferred income taxes
 
66

 
31

Loss on derivative instruments, net
 
612

 
914

 Net cash received (paid) for derivative settlements
 
238

 
(365
)
 Gain on sale of equity securities
 

 
(823
)
 Bad debt expense
 
293

 

Changes in operating assets and liabilities:
 
 
 
 
Decrease (increase) in accounts receivable
 
185

 
(6,146
)
Decrease (increase) in other current assets
 
1,268

 
(496
)
Increase in other deferred charges
 

 
(427
)
Increase (decrease) in accounts payable and accrued liabilities
 
481

 
(1,169
)
Net cash provided by operating activities
 
$
29,567


$
14,899

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Acquisitions of oil and gas properties
 
(81,053
)
 
(105,041
)
Additions to other fixed assets
 
(113
)
 
(334
)
Proceeds from sale of oil and gas properties, net
 
2,001

 
125

Changes in restricted cash held in escrow for acquisitions
 
33

 
(3,953
)
Net cash used in investing activities
 
$
(79,132
)

$
(109,203
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Repayments of short-term debt
 
(4,596
)
 

Repayments of long-term debt
 
(195,404
)
 

Borrowings of long-term debt
 
25,000

 
43,000

Payment of debt extinguishment fees
 
(2,090
)
 

Proceeds from issuance of Class A common stock sold in initial public offering, net of offering costs
 
278,541

 

Capital contributions
 

 
46,011

Loan closing costs
 
(1,144
)
 
(3
)
Net cash provided by financing activities
 
$
100,307


$
89,008

 
 
 
 
 
Increase (decrease) in cash and cash equivalents   
 
50,742

 
(5,296
)
Cash and cash equivalents, beginning of period   
 
31,985

 
6,886

Cash and cash equivalents, end of period   
 
$
82,727

 
$
1,590

Supplemental disclosure of non-cash activity:
 
 
 
 
Equity securities distributed
 
$

 
$
4,246

Accrued capital expenditures
 
$
1,679

 
$
43

Capitalized share-based compensation expense
 
$
1,010

 
$

Increase (decrease) in temporary equity for adjustment to fair value, with offsetting decrease (increase) in additional paid-in capital
 
$
97,344

 
$

Supplemental cash flow information:
 
 
 
 
Cash interest payments
 
$
5,490

 
$
1,081

Cash paid for taxes
 
$
283

 
$
84

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

5


BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)

1.
Business and Basis of Presentation

Description of the Business

Brigham Minerals, Inc. (together with its wholly owned subsidiaries, “Brigham Minerals” or the "Company") is a Delaware corporation formed in June 2018 to become a holding company. Brigham Minerals acquired an indirect interest in Brigham Resources, LLC (“Brigham Resources”), our predecessor, on July 16, 2018 in a series of restructuring transactions pursuant to which certain entities affiliated with Warburg Pincus LLC (“Warburg Pincus”) contributed all of their respective interests in the entities through which they held interests in Brigham Resources to Brigham Minerals in exchange for all of the outstanding shares of common stock of Brigham Minerals (the "July 2018 restructuring"). As a result of such restructuring transactions, Brigham Minerals became wholly owned by an entity affiliated with Warburg Pincus, and Brigham Minerals indirectly owned a 16.5% membership interest in Brigham Resources. The remaining outstanding membership interests of Brigham Resources remained with certain other entities affiliated with Warburg Pincus, Yorktown Partners LLC and Pine Brook Road Advisors, LP, Brigham Minerals' management and its other investors (collectively, the "Existing Owners").

On November 20, 2018, Brigham Resources underwent a second series of restructuring transactions (the “November 2018 restructuring”). In the November 2018 restructuring, Brigham Resources became a wholly owned subsidiary of Brigham Minerals Holdings, LLC (“Brigham LLC”), which was a wholly owned subsidiary of Brigham Equity Holdings, LLC (“Brigham Equity Holdings”), and Brigham Equity Holdings became wholly owned by the owners of Brigham Resources immediately prior to such restructuring, directly or indirectly, through Brigham Minerals. As a result of the foregoing transactions, there was no change in the control or economic interests of the Existing Owners and Brigham Minerals in Brigham Resources, although their ownership became indirect through Brigham Equity Holdings and its wholly owned subsidiary, Brigham LLC. The July 2018 restructuring and the November 2018 restructuring are collectively referred to herein as, the "corporate reorganization."

Brigham Resources wholly owns Brigham Minerals, LLC and Rearden Minerals, LLC (collectively, the “Minerals Subsidiaries”), which acquire and actively manage a portfolio of mineral and royalty interests. The Minerals Subsidiaries are Brigham Resources’ sole material assets. Brigham Resources also previously owned Brigham Resources Operating, LLC (“Brigham Operating”), an upstream oil and gas exploration and production business in the southern Delaware Basin of West Texas. In February 2017, Brigham Operating completed the sale of substantially all of its oil and natural gas properties to an unrelated third-party purchaser, following which Brigham Operating’s only material assets consisted of an ownership interest in Oryx Southern Delaware Holdings, LLC, an entity that operates a crude oil gathering system located in the southern Delaware Basin. Immediately prior to Brigham Minerals' initial public offering of shares of its Class A common stock, which was completed in April 2019 (the "IPO" or the "Offering"), Brigham Resources distributed to its members or their affiliates 100% of the equity interests in Brigham Operating. Subsequent to the distribution, Brigham Resources no longer had any direct or indirect ownership interest in Brigham Operating. Unless otherwise indicated, the historical financial information relating to periods prior to our IPO reflects only the historical financial results of our predecessor, excluding the historical results and operations of Brigham Operating, and does not give effect to the Offering.

Initial Public Offering

In April 2019, Brigham Minerals completed the initial public offering of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. This resulted in net proceeds of approximately $274.9 million, after deducting underwriting commissions and discounts and offering expenses. As a result of the Offering and the corporate restructuring described below, Brigham Minerals became a holding company whose sole material asset consists of a 43.3% interest in Brigham LLC, which wholly owns Brigham Resources. Brigham Resources continues to wholly own the Minerals Subsidiaries, which own all of Brigham Resources' operating assets. In connection with the Offering, Brigham Minerals became the sole managing member of Brigham LLC and is responsible for all operational, management and administrative decisions relating to Brigham LLC’s business and consolidates the financial results of Brigham LLC and its wholly-owned subsidiary, Brigham Resources.
All of the interests in Brigham Operating were distributed, directly or indirectly, to the Existing Owners prior to the consummation of the Offering. As a result, neither Brigham Minerals nor Brigham LLC owned any direct or indirect interest in Brigham Operating at the time of the Offering.

6

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)



In connection with the Offering,
all of the outstanding membership interests in Brigham LLC were converted into a single class of common units in Brigham LLC (the “Brigham LLC Units”);
Brigham Minerals issued shares of Class A common stock to certain of our Existing Owners in exchange for incentive units in Brigham Equity Holdings;
Brigham Equity Holdings distributed all of its equity interests in Brigham LLC, other than its interests in Brigham LLC attributable to certain unvested incentive units in Brigham Equity Holdings, to the Existing Owners and Brigham Minerals (which resulted in the ownership in Brigham LLC of our Existing Owners with respect to unvested incentive units remaining consolidated in Brigham Equity Holdings);
Brigham Minerals issued 16,675,000 shares of Class A common stock, including the Underwriters' overallotment, to purchasers in the Offering in exchange for the cash proceeds of the Offering;
Each holder of Brigham LLC Units following the restructuring (a “Brigham Unit Holder”), other than Brigham Minerals and its subsidiaries, received a number of shares of Class B common stock equal to the number of Brigham LLC Units held by such Brigham Unit Holder following the Offering; and
Brigham Minerals contributed, directly or indirectly, the net proceeds of the Offering to Brigham LLC in exchange for an additional number of Brigham LLC Units such that Brigham Minerals holds, directly or indirectly, a total number of Brigham LLC Units equal to the number of shares of Class A common stock outstanding following the Offering.

After the transactions discussed above and after the Offering,
the Existing Owners own all of Brigham Minerals' Class B common stock, representing 56.7% of Brigham Minerals' capital stock;
the Existing Owners own 5,322,198 shares, or 24.2%, of Brigham Minerals' Class A common stock, representing 10.5% of Brigham Minerals' capital stock;
investors in the Offering own 16,675,000 shares, or 75.8%, of Brigham Minerals' Class A common stock, representing 32.8% of Brigham Minerals' capital stock;
Brigham Minerals owns an approximate 43.3% interest in Brigham LLC; and
the Existing Owners own directly an approximate 56.7% interest in Brigham LLC (in addition to the 10.5% interest in Brigham LLC the Existing Owners own directly through their ownership of shares of Brigham Minerals' Class A common stock).
Following the IPO, and prior to June 30, 2019, Brigham Resources:

fully repaid the $200.0 million outstanding balance under the Owl Rock credit facility (as defined below) on May 7, 2019;
wrote-off $4.0 million of capitalized debt issuance cost and incurred $2.1 million in prepayment fees and $0.8 million in accrued legal fees resulting in a loss on extinguishment of debt of approximately $6.9 million in its statement of operations during the three months ended June 30, 2019;
applied capitalized issuance cost of $7.2 million as a reduction of additional paid-in-capital of which $3.6 million was incurred in 2018 and $3.6 million was incurred in 2019;
recognized a charge for share-based compensation cost of approximately $6.5 million related to the estimated fair value of the Incentive Units (as defined below), restricted stock awards (“RSAs”), restricted stock units subject to time-based vesting (“RSUs”) and restricted stock units subject to performance-based vesting (“PSUs”), net of $1.0 million of capitalized share-based compensation expense, all of which was non-cash. In addition, as the vesting conditions of the Incentive Units, RSAs, RSUs and PSUs are satisfied, Brigham Minerals will recognize additional non-cash charges for share-based compensation cost of approximately $25.9 million;
entered into a credit agreement on May 16, 2019 with a banking syndicate, including Wells Fargo Bank, N.A., as administrative agent for a new revolving credit facility; and
received a full refund of the cash collateral related to the existing WTI fixed price swap contracts, which was $1.6 million as of May 2019, upon entering into the new revolving credit facility (as defined below).




7

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)



Basis of Presentation

Subsequent to the July 2018 restructuring and prior to the IPO, Brigham Minerals used the equity method of accounting for its investment in Brigham Resources, its predecessor, because its 16.5% ownership in Brigham Resources provided Brigham Minerals with significant influence, but not with a controlling financial interest or the ability to direct the most significant activities of Brigham Resources. Upon the completion of the IPO, Brigham Minerals indirectly owned an approximate 43.3% interest of Brigham Resources and 100% of the voting rights and consolidates the results of operations of Brigham Resources. Accordingly, the accompanying unaudited condensed consolidated and combined financial statements and related notes of Brigham Minerals for periods prior to the IPO, including the 2018 amounts presented, have been retrospectively recast to include the historical results and operations of Brigham Resources at historical carrying values. All intercompany transactions between Brigham Minerals and Brigham Resources have been eliminated.

The accompanying unaudited consolidated condensed and combined interim financial statements of Brigham Minerals have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), except that, in accordance with the instructions to Form 10-Q, they do not include all of the notes required for financial statements prepared in conformity with U.S. GAAP. Accordingly, the accompanying unaudited interim financial statements should be read in conjunction with our audited financial statements included in the registration statement on Form S-1, as amended, filed with the Securities and Exchange Commission (the “SEC”) and declared effective on April 17, 2019 (the "IPO registration statement"). The unaudited interim financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair representation. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2019. Unless otherwise indicated, the historical financial information relating to periods prior to our IPO reflects only the historical financial results of our predecessor, excluding the historical results and operations of Brigham Operating, and does not give effect to the Offering.

Brigham Minerals operates in one segment: oil and natural gas exploration and production.

2.
Summary of Significant Accounting Policies    

Use of Estimates

These condensed consolidated and combined financial statements and related notes are presented in accordance with GAAP. Preparation in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Although management believes these estimates are reasonable, actual results could differ from these estimates. Changes in estimates are recorded prospectively.

The accompanying condensed consolidated and combined financial statements are based on a number of significant estimates including quantities of oil, natural gas and NGL reserves that are the basis for the calculations of depreciation, depletion, amortization (“DD&A”) and impairment of oil and natural gas properties. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas and there are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, reserve estimates may differ from the quantities of oil and natural gas that are ultimately recovered. Brigham Minerals’ year-end reserve estimates are audited by Cawley, Gillespie & Associates, Inc. (“CG&A”), an independent petroleum engineering firm. Quarterly reserve estimates are internally generated by our in-house engineering staff. Other items subject to significant estimates and assumptions include the carrying amount of oil and natural gas properties, valuation of derivative instruments, share-based compensation costs, and revenue accruals.

Significant Accounting Policies

Significant accounting policies are disclosed in Brigham Resources' audited consolidated financial statements and notes for the year ended December 31, 2018, presented in the IPO registration statement. There have been no changes in such policies or the application of such policies during the three months ended June 30, 2019, except as described below:



8

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Share Based Compensation

Brigham Minerals accounts for its share-based compensation including grants of the Incentive Units, restricted stock awards, time-based restricted stock units and performance-based stock units in the condensed consolidated and combined statements of operations based on their estimated fair values at grant date. Brigham Minerals recognizes expense on a straight-line basis over the vesting period of the respective grant, which is generally the requisite service period. Share-based compensation is included in General and administrative expenses in Brigham Minerals’ condensed consolidated and combined statements of operations included within this Quarterly Report. There was approximately $25.9 million of unamortized compensation expense relating to outstanding awards at June 30, 2019. The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards. Brigham Minerals accounts for forfeitures as they occur.

Earnings Per Share

Brigham Minerals uses the “if-converted” method to determine the potential dilutive effect of its Class B common stock and the treasury stock method to determine the potential dilutive effect of outstanding Incentive Units, RSAs, RSUs, and PSUs.

Income Taxes

Brigham Minerals accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. On IPO date, Brigham Minerals recognized a tax benefit of approximately $13.7 million, associated with the differences between the tax and book basis of the investment in Brigham Resources, LLC, as discussed in “Note 11 - Income Taxes”.

Temporary Equity

Brigham Minerals accounts for the Existing Owners' 56.7% interest in Brigham LLC as temporary equity as a result of certain redemption rights held by the Existing Owners as discussed in "Note 9 - Temporary Equity." As such, the Company adjusts temporary equity to its maximum redemption amount at the balance sheet date, if higher than the carrying amount. The redemption amount is based on the 10-day volume-weighted average closing price ("VWAP") of Class A shares at the end of the reporting period. Changes in the redemption value are recognized immediately as they occur, as if the end of the reporting period was also the redemption date for the instrument, with an offsetting entry to additional paid-in capital.

Recently Issued Accounting Standards
Brigham Minerals’ status as an emerging growth company under Section 107 of the JOBS Act permits it to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Brigham Minerals is choosing to take advantage of this extended transition period and, as a result, Brigham Minerals will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Clarifying the Definition of a Business. This guidance assists in determining whether a transaction should be accounted for as an acquisition or disposal of assets or as a business. This ASU provides a screen that when substantially all of the fair value of the gross assets acquired, or disposed of, are concentrated in a single identifiable asset, or a group of similar identifiable assets, the set will not be considered a business. If the screen is not met, a set must include an input and a substantive process that together significantly contribute to the ability to create an output to be considered a business. The new standard becomes effective for us during the fiscal year ending December 31, 2019 and interim periods within the fiscal year ending December 31, 2020 and is required to be adopted using a prospective approach. Although early application is permitted, we have not adopted ASU 2017-01 early. The implementation of the new standard is not anticipated to have a material impact on the condensed consolidated and combined financial statements.

9

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The new standard becomes effective for us during the fiscal year ended December 31, 2019 and interim periods within the fiscal year ending December 31, 2020 and is required to be adopted utilizing retrospective application. Although early application is permitted, we have not adopted ASU 2016-18 early.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires all leasing arrangements to be presented in the balance sheet as liabilities along with a corresponding asset. ASU 2016-02 does not apply to leases of mineral rights to explore for or use crude oil and natural gas. The ASU will replace most existing lease guidance in GAAP when it becomes effective. In January 2018, the FASB issued ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, to provide an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-11 Leases (Topic 842): Targeted Improvements, which provides for another transition method, in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (i.e. comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases)). The new standard becomes effective for us during the fiscal year ending December 31, 2020 and interim periods within the fiscal year ending December 31, 2021 and early adoption is permitted. We are currently evaluating the impact, that the adoption of this update will have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities-Oil and Gas-Revenue Recognition, and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The new standard becomes effective for us for the fiscal year ending on December 31, 2019 and interim periods within the fiscal year ending December 31, 2020. We intend to adopt the standard using the modified retrospective approach.
We completed our review of revenue contracts covering our material revenue streams, designed to evaluate any potential changes in revenue recognition upon adoption of the new standard, and concluded that the implementation of the new standard will not have a material impact on the consolidated financial statements. We also evaluated the information technology and internal control changes that may be required to implement the new standard based on the results of our contract review process.

3.
Oil and Gas Properties
Brigham Minerals uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition costs incurred for the purpose of acquiring mineral and royalty interests, including certain internal costs, are capitalized into a full cost pool. Costs associated with general corporate activities are expensed in the period incurred. Oil and gas properties as of the dates shown consisted of the following:
(In thousands)
 
June 30, 2019
 
December 31, 2018
Oil and gas properties, at cost, using the full cost method of accounting:
 
 
 
 
Unevaluated property
 
$
244,755

 
$
228,151

Evaluated property
 
355,563

 
289,851

Total oil and gas properties, at cost
 
600,318

 
518,002

Less accumulated depreciation, depletion, and amortization
 
(41,214
)
 
(27,628
)
Total oil and gas properties, net
 
$
559,104

 
$
490,374


Capitalized costs are depleted on a unit of production basis based on proved oil and natural gas reserves. Depletion expense was $6.6 million and $3.1 million for the three months ended June 30, 2019 and 2018, respectively, and $11.6 million and $5.4 million for the six months ended June 30, 2019 and 2018, respectively. Average depletion of proved properties was $10.74 per

10

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Boe and $9.05 per Boe for the three months ended June 30, 2019 and 2018, respectively, and $10.53 per Boe and $8.61 per Boe for the six months ended June 30, 2019 and 2018, respectively.
The costs associated with unevaluated properties primarily consist of acquisition costs and capitalized general and administrative costs. Brigham Minerals capitalizes certain overhead expenses and other internal costs attributable to the acquisition of mineral and royalty interests as part of its investment in oil and gas properties over the periods benefitted by these activities. Capitalized costs do not include any costs related to general corporate overhead or similar activities. Capitalized costs were $1.6 million and $0.6 million for the three months ended June 30, 2019 and 2018, respectively, and $2.7 million and $1.4 million for the six months ended June 30, 2019 and 2018, respectively.

4.
Acquisitions and Divestitures
During the six months ended June 30, 2019 and 2018, Brigham Minerals entered into a number of individually insignificant acquisitions of mineral and royalty interests from various sellers in Texas, Oklahoma, Colorado, New Mexico, and North Dakota, as reflected in the tables below. The change in the oil and natural gas property balance is comprised of individually insignificant payments for acquisitions of minerals, land brokerage costs and capitalized general and administrative expenses that were funded with borrowings under its Owl Rock credit facility and proceeds from the Offering.
 
 
Assets Acquired
 
Cash Consideration
(In thousands)
 
Evaluated
 
Unevaluated
 
Paid
Quarter Ended March 31, 2019
 
$
27,929

 
$
13,403

 
$
41,332

Quarter Ended June 30, 2019
 
25,050

 
14,925

 
39,975

Total Acquired
 
$
52,979

 
$
28,328

 
$
81,307

 
 
Assets Acquired
 
Cash Consideration
(In thousands)
 
Evaluated
 
Unevaluated
 
Paid
Quarter Ended March 31, 2018
 
$
14,132

 
$
11,462

 
$
25,594

Quarter Ended June 30, 2018
 
21,903

 
16,558

 
38,461

Total Acquired
 
$
36,035

 
$
28,020

 
$
64,055

In June 2018, Brigham Minerals closed on the acquisition of certain mineral interests from an unrelated third-party in the Delaware Basin in Loving County, Texas and Lea County, New Mexico for $41 million, subject to customary post-closing adjustments. Brigham Minerals funded the acquisition with capital contributions and borrowings under its prior revolving credit facility. The allocation of the purchase price was $22.8 million to evaluated properties and $18.2 million to unevaluated properties.
In June 2018, Brigham Minerals entered into a definitive agreement with an unrelated third party to acquire certain mineral interests in Reeves, Loving and Ward counties in the Delaware Basin for $25.8 million and closed on $22.0 million and $3.8 million of such mineral interests in the third and fourth quarter of 2018, respectively. The allocation of the purchase price was $18.4 million to evaluated properties and $7.4 million to unevaluated properties.

5.
Derivative Instruments
Brigham Minerals periodically uses commodity derivative instruments to reduce its exposure to commodity price volatility for a portion of its forecasted crude oil and natural gas sales and thereby achieve a more predictable level of cash flows. None of the derivative instruments are designated as hedges. Brigham Minerals does not enter into derivative instruments for speculative or trading purposes.
Because the counterparties to Brigham Minerals derivative instruments have investment grade credit ratings, Brigham Minerals believes it does not have significant credit risk and accordingly does not currently require its counterparties to post

11

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


collateral to support the net asset positions of its derivative instruments as of June 30, 2019. Although Brigham Minerals does not currently anticipate nonperformance from its counterparties, it continually monitors the credit ratings of its counterparties.
Concurrent with the termination of its prior revolving credit facility in July of 2018, Brigham Resources posted cash collateral of $1.4 million for its existing WTI fixed price swap contracts. The cash collateral was $1.6 million in May 2019 prior to the termination of the Owl Rock credit facility. The cash collateral was returned to Brigham Resources upon entering into the new revolving credit facility, as discussed in "Note 1 - Business and Basis of Presentation."
As of June 30, 2019, Brigham Minerals had certain WTI fixed price swap contracts based on the NYMEX futures index. The fair values, notional quantities and weighted-average swap prices of these contracts as of June 30, 2019, are summarized in the table below.
Description & Production Period
 
Volume
 
Weighted
Average Swap
Price
 
Fair Value
Asset/(Liability)
 
 
(Bbl)
 
($/Bbl)
 
(In thousands)
Crude Oil Swaps:
 
 
 
 
 
 
July 2019 — September 2019
 
15,000

 
$
63.61

 
$
77

October 2019 — December 2019
 
15,000

 
$
63.61

 
$
85

Total
 
30,000

 
$
63.61

 
$
162

Brigham Minerals' derivative instruments are subject to master netting arrangements and are presented on a net basis in its condensed consolidated and combined balance sheets. The following table summarizes the location and fair value of its derivative instruments as of June 30, 2019 and December 31, 2018 (in thousands):
Derivative Instruments
 
Balance Sheet Classification
 
Gross Amount
Recognized
 
Less Group
Amount of
Offset
 
Net Amount
Recognized
As of June 30, 2019
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Commodity swaps
 
Current derivative assets
 
$
162

 
$

 
$
162

As of December 31, 2018
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
Commodity swaps
 
Current derivative assets
 
$
1,057

 
$

 
$
1,057


The following table summarizes Brigham Minerals' gain (loss) on derivative instruments, net on its condensed consolidated and combined statement of operations for the three and six months ended June 30, 2019 and 2018 (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
 
2019
 
2018
 
2019
 
2018
Realized gain (loss)
 
$
40

 
$
(247
)
 
$
238

 
$
(365
)
Unrealized gain (loss)
 
33

 
(308
)
 
(850
)
 
(549
)
Combined - realized/unrealized gain (loss)
 
$
73

 
$
(555
)
 
$
(612
)
 
$
(914
)

6.
Fair Value Measurements
We classify financial assets and liabilities that are measured and reported at fair value on a recurring basis using a hierarchy based on the inputs used in measuring fair value. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We classify the inputs used to measure fair value into the following hierarchy:

12

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Level 1: Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Inputs based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable and can be corroborated by observable market data.
Level 3: Inputs that reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.
Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer would be reported at the beginning of the period in which the change occurs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our financial assets and liabilities that were accounted for at fair value on a recurring basis at June 30, 2019 and December 31, 2018 are as follows:
 
 
June 30, 2019
(In thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
Assets—commodity derivative instruments
 
$

 
$
162

 
$

 
$
162

 
 
December 31, 2018
(In thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets—commodity derivative instruments
 
$

 
$
1,057

 
$

 
$
1,057

Our derivative instruments consist of WTI fixed price swaps carried at fair value as disclosed in "Note 5 - Derivative Instruments." Commodity derivative instruments are valued using a third-party industry-standard pricing model using contract terms and prices and assumptions and inputs that are substantially observable in active markets throughout the full term of the instruments, including forward oil and gas price curves, discount rates and volatility factors. The fair values are also compared to the values provided by the counterparties for reasonableness and are adjusted for the counterparties’ credit quality for derivative assets and our credit quality for derivative liabilities. As such, these derivative contracts are classified within Level 2.
Brigham Minerals had no transfers into or out of Level 1 and no transfers into or out of Level 2 for the six months ended June 30, 2019 and 2018.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Certain non-financial assets and liabilities, such as assets and liabilities acquired in a business combination, are measured at fair value on a nonrecurring basis on the acquisition date and are subject to fair value adjustments under certain circumstances. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and include factors such as estimates of economic reserves, future commodity prices and a risk-adjusted discount rates, and are classified within Level 3.
Fair Value of Other Financial Instruments
The carrying value of cash, trade and other receivables and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. The carrying amount of debt outstanding pursuant to our prior revolving credit facility, Owl Rock credit facility, and new revolving credit facility approximates fair value as interest rates on these instruments approximate current market rates. We categorized our long-term debt within Level 2 of the fair value hierarchy.




13

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


7. Long-Term Debt

Prior Revolving Credit Facility
Prior to its termination on July 27, 2018, the Minerals Subsidiaries maintained a secured revolving credit facility with a syndicate of financial institutions (the "prior revolving credit facility”), which had been amended periodically. The prior revolving credit facility had a commitment of $150 million, and a borrowing base and outstanding borrowings of $70 million each as of July 27, 2018. Brigham Minerals terminated the prior revolving credit facility on July 27, 2018 with proceeds from the Owl Rock credit facility (as defined below). Additionally, during the third quarter of 2018, Brigham Resources wrote off approximately $0.3 million of unamortized debt issuance costs that were related to the prior revolving credit facility.
Owl Rock Credit Facility
On July 27, 2018, the prior revolving credit facility was terminated in conjunction with the entry into a new credit facility (the “Owl Rock credit facility”) with Owl Rock Capital Corporation as administrative agent and collateral agent. Brigham Resources used the proceeds from the Owl Rock credit facility to repay the outstanding $70 million of principal under the prior revolving credit facility and to fund mineral and royalty acquisitions. The Owl Rock credit facility was subject to customary fees, guarantees of subsidiaries, restrictions and covenants, including certain restricted payments, and was collateralized by certain oil and natural gas properties of Brigham Resources. The Owl Rock credit facility provided for a $125 million initial term loan, a $75 million delayed draw term loan ("DDTL") and a $10 million revolving credit facility, bore interest at a rate per annum equal to, at Brigham Resources’ option, (a) the base rate plus 4.50%, or (b) the adjusted LIBOR rate for such interest period (subject to a 1.00% floor) plus 5.50%, matured on July 27, 2024 and required Brigham Resources to maintain compliance with certain financial and collateral coverage ratios.
On May 7, 2019, the Owl Rock credit facility was terminated and paid off using the proceeds generated from the Offering. As a result of the debt repayment, Brigham Minerals recognized a loss on extinguishment of debt of $6.9 million, which consisted of a $4.0 million write-off of capitalized debt issuance costs, a $2.1 million prepayment fee and accrued legal fees of $0.8 million.
New Revolving Credit Facility

On May 16, 2019 (the “closing date”) Brigham Resources entered into a credit agreement with Wells Fargo Bank, N.A., as administrative agent for the various lenders from time to time party thereto, providing for a new revolving credit facility (our “new revolving credit facility”). Our new revolving credit facility is guaranteed by Brigham Resources’ domestic subsidiaries and is collateralized by a lien on substantially all of Brigham Resources and its domestic subsidiaries’ assets, including substantially all of their respective royalty and mineral properties.
Availability under our new revolving credit facility is governed by a borrowing base, which is subject to redetermination on August 1, 2019, November 1, 2019, February 1, 2020, and semi-annually thereafter on May 1 and November 1 of each year, commencing with May 1, 2020. In addition, lenders holding two-thirds of the aggregate commitments may request one additional redetermination each year. Brigham Resources can also request one additional redetermination each year, and such other redeterminations as appropriate when significant acquisition opportunities arise. The borrowing base is subject to further adjustments for asset dispositions, material title deficiencies, certain terminations of hedge agreements and issuances of permitted additional indebtedness. Increases to the borrowing base require unanimous approval of the lenders, while decreases only require approval of lenders holding two-thirds of the aggregate commitments at such time. As of the closing date, the borrowing base was $120 million and there were no amounts drawn under our new revolving credit facility.
Our new revolving credit facility bears interest at a rate per annum equal to, at our option, the adjusted base rate or the adjusted LIBOR rate plus an applicable margin. The applicable margin is based on utilization of our new revolving credit facility and ranges from (a) in the case of adjusted base rate loans, 0.750% to 1.750% and (b) in the case of adjusted LIBOR rate loans, 1.750% to 2.750%. Brigham Resources may elect an interest period of one, two, three, six, or if available to all lenders, twelve months. Interest is payable in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee is payable quarterly in arrears on the daily undrawn available commitments under our new revolving credit facility in an amount ranging from 0.375% to 0.500% based on utilization of our new revolving credit facility. Our new revolving credit facility is subject to other customary fee, interest and expense reimbursement provisions.

14

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Our new revolving credit facility matures on May 16, 2024. Loans drawn under our new revolving credit facility may be prepaid at any time without premium or penalty (other than customary LIBOR breakage) and must be prepaid in the event that exposure exceeds the lesser of the borrowing base and the elected availability at such time. The principal amount of loans that are prepaid are required to be accompanied by accrued and unpaid interest and fees on such amounts. Loans that are prepaid may be reborrowed. In addition, Brigham Resources may permanently reduce or terminate in full the commitments under our new revolving credit facility prior to maturity. Any excess exposure resulting from such permanent reduction or termination must be prepaid. Upon the occurrence of an event of default under our new revolving credit facility, the administrative agent acting at the direction of the lenders holding a majority of the aggregate commitments at such time may accelerate outstanding loans and terminate all commitments under our new revolving credit facility, provided that such acceleration and termination occurs automatically upon the occurrence of a bankruptcy or insolvency event of default.
Our new revolving credit facility contains customary affirmative and negative covenants, including, without limitation, reporting obligations, restrictions on asset sales, restrictions on additional debt and lien incurrence and restrictions on making distributions (subject only to no default or borrowing base deficiency) and investments. In addition, our new revolving credit facility requires us to maintain (a) a current ratio of not less than 1.00 to 1.00 and (b) a ratio of total net funded debt to consolidated EBITDA of not more than 4.00 to 1.00.
As of June 30, 2019, we were in compliance with all covenants in accordance with our new revolving credit facility.
As of June 30, 2019, we had no borrowings under our new revolving credit facility.

8. Shareholders' and Members' Equity

Class A Common Stock

Brigham Minerals has 22.0 million shares of its Class A common stock outstanding as of June 30, 2019. Holders of Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders and are entitled to ratably receive dividends when and if declared by the Company’s board of directors. Upon liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities.

Class B Common Stock

Brigham Minerals has 28.8 million shares of its Class B common stock outstanding as of June 30, 2019. Holders of the Class B common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters presented to Brigham Minerals’ stockholders for their vote or approval. Holders of Class B common stock generally do not have any right to receive dividends or distributions upon a liquidation or winding up of Brigham Minerals.

Earnings per Share

Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. Brigham Minerals uses the “if-converted” method to determine the potential dilutive effect of exchanges of outstanding shares of Class B common stock (and corresponding Brigham LLC Units), and the treasury stock method to determine the potential dilutive effect of vesting of its outstanding RSAs, RSUs, PSUs and unvested Incentive Units. Brigham Minerals does not use the two-class method because the Class B common stock and the unvested share-based awards are nonparticipating securities. For the three and six months ended June 30, 2019, the Incentive Units and RSUs were not recognized in dilutive EPS calculations as the effect would have been antidilutive. There were no shares of Class A or Class B common stock outstanding for the three and six months ended June 30, 2018, therefore no earnings per share information has been presented for those periods.

For the three and six months ended June 30, 2019, Brigham Minerals' EPS calculation includes only its share of net loss for the period subsequent to the IPO, and omits income or loss prior to the IPO. In addition, the basic weighted average shares outstanding calculation is based on the actual days in which the shares were outstanding from the IPO date through June 30, 2019.

15

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


The following table reflects the allocation of net loss to common stockholders and EPS computations for the period indicated based on a weighted average number of common stock outstanding for the period:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Basic EPS
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Basic net loss attributable to Brigham Minerals, Inc. shareholders
 
$
(1,856
)
 
$

 
$
(1,322
)
 
$

Less: net income attributable to Brigham Minerals, Inc. shareholders pre-IPO
 
(314
)
 

 
(848
)
 

Basic net loss attributable to Brigham Minerals, Inc. shareholders post-IPO
 
$
(2,170
)
 
$

 
$
(2,170
)
 
$

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
17,819

 

 
8,959

 

Basic EPS attributable to Brigham Minerals, Inc. shareholders
 
$
(0.12
)
 
$

 
$
(0.24
)
 
$

 
 
 
 
 
 
 
 
 
Diluted EPS
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Basic net loss attributable to Brigham Minerals, Inc. shareholders post-IPO
 
(2,170
)



(2,170
)


Effect of Class B Shares
 
(2,941
)
 

 
(2,941
)
 

Diluted net loss attributable to Brigham Minerals, Inc. shareholders
 
$
(5,111
)
 
$

 
$
(5,111
)
 
$

Denominator:
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
17,819

 

 
8,959

 

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Class B Shares
 
23,718

 

 
11,924

 

Time-based restricted stock awards
 
(77
)
 

 
(77
)
 

Diluted weighted average shares outstanding
 
41,460

 

 
20,806

 

Diluted EPS attributable to Brigham Minerals, Inc. shareholders
 
$
(0.12
)
 
$

 
$
(0.25
)
 
$

             
As of June 30, 2019, there were 753,546  shares related to PSUs (based on target), that could vest in the future based on predetermined performance goals. These units were not included in the computation of EPS for the three and six months ended June 30, 2019, because the performance goals had not been met, assuming the end of the reporting period was the end of the contingency period.

9. Temporary Equity

Temporary equity represents the Existing Owners' 56.7% ownership of Brigham LLC. In addition, the Existing Owners own all of our Class B common stock. Each share of Class B common stock does not have any economic rights but entitles its holder to one vote on all matters to be voted on by our stockholders, generally. As discussed in "Note 1- Business and Basis of Presentation," following the Offering:

Each holder of Brigham LLC Units following the restructuring, other than Brigham Minerals and its subsidiaries, received a number of shares of Class B common stock equal to the number of Brigham LLC Units held by such Brigham Unit Holder following the Offering;


16

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


Brigham Minerals contributed, directly or indirectly, the net proceeds of the Offering to Brigham LLC in exchange for an additional number of Brigham LLC Units such that Brigham Minerals holds, directly or indirectly, a total number of Brigham LLC Units equal to the number of shares of Class A common stock outstanding following the Offering; and

Under the Amended and Restated Limited Liability Company Agreement of Brigham LLC (the "Brigham LLC Agreement"), each Brigham Unit Holder, subject to certain limitations, has a right (the "Redemption Right") to cause Brigham LLC to acquire all or a portion of its Brigham LLC Units for, at Brigham LLC’s election, (i) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each Brigham LLC Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions or (ii) an equivalent amount of cash. We will determine whether to issue shares of Class A common stock or cash based on facts in existence at the time of the decision, which we expect would include the relative value of the Class A common stock (including trading prices for the Class A common stock at the time), the cash purchase price, the availability of other sources of liquidity (such as an issuance of preferred stock) to acquire the Brigham LLC Units and alternative uses for such cash. Alternatively, upon the exercise of the Redemption Right, Brigham Minerals (instead of Brigham LLC) will have a call right to, for administrative convenience, acquire each tendered Brigham LLC Unit directly from the redeeming Brigham Unit Holder for, at its election, (x) one share of Class A common stock or (y) an equivalent amount of cash (the "Call Right"). The decision to make a cash payment upon a Brigham Unit Holder's exercise of its Redemption Right is required to be made by the Company's directors who are independent under Section 10A-3 of the Securities Act and do not hold any Brigham LLC Units subject to such redemption. In connection with any redemption of Brigham LLC Units pursuant to the Redemption Right or acquisition pursuant to our Call Right, the corresponding number of shares of Class B common stock will be cancelled.

Class B common stock is classified as temporary equity in the condensed consolidated and combined balance sheet as, pursuant to the Brigham LLC Agreement, the Redemption Rights of each Brigham Unit Holder for either shares of Class A common stock or an equivalent amount of cash is not solely within Brigham Minerals' control. This is due to the holders of the Class B common stock collectively owning a majority of the voting stock of the Company, which allows the holders of Class B common stock to elect the members of the board of directors of the Company, including those directors that determine whether to make a cash payment upon a Brigham Unit Holder's exercise of its Redemption Right. Temporary equity is recorded at the greater of the book value or redemption amount. From the date of the Offering through June 30, 2019, the Company recorded adjustments to the value of temporary equity as presented in the table below:
(In thousands)
 
Temporary Equity Adjustments
Balance - April 17, 2019 (1)
 
$
518,000

Net loss attribution post-IPO
 
(2,941
)
Distribution of pre-IPO restricted cash to Existing Owners
 
(441
)
Adjustment of temporary equity to redemption amount (2)
 
97,344

Balance - June 30, 2019
 
$
611,962

(1) Based on 28,777,802 shares of Class B common stock outstanding and Class A share price of $18.00 at IPO date.
(2) Based on 28,777,802 shares of Class B common stock outstanding and Class A share VWAP of $21.27 at June 28, 2019.


10. Share-Based Compensation

LLC Incentive Units

As part of the Second Amended and Restated Limited Liability Company Agreement of Brigham Resources, LLC dated May 8, 2015, Brigham Resources authorized 120,000 restricted incentive units for issuance to management, independent directors, employees, and consultants (such incentive units, as converted as described below, the "Incentive Units”). Brigham Resources granted Incentive Units in April 2013 and September 2015 and 2018. In connection with certain reorganization transactions consummated in November 2018 and the corporate reorganization consummated in connection with Brigham Minerals' IPO, these Incentive Units were converted into units in Brigham Equity Holdings, LLC ("Brigham Equity Holdings") with equivalent rights, responsibilities, and preferences. The Incentive Units are subject to vesting as follows: 20% of the Incentive Units were vested on the date of grant and 20% of the Incentive Units vest on each anniversary of the date of grant if the holder remains continuously employed by Brigham Resources or its affiliates through the applicable vesting date. Upon vesting of the Incentive Units, holders

17

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


of the Incentive Units will receive one share of Brigham Minerals' Class B common stock and one Brigham LLC Unit for each vested Incentive Unit.

In connection with the completion of the IPO, Brigham LLC discontinued granting new Incentive Units; however Brigham LLC will continue to administer the existing awards that remain outstanding. As discussed in "Note 9 - Temporary Equity," participants may receive one share of Brigham Minerals' Class A common stock in exchange for one share of Class B common stock and one Brigham LLC Unit, or cash at the option of Brigham Minerals. Brigham Minerals accounts for the Incentive Units as compensation cost measured at the fair value of the award on the date of grant. No compensation expense was recognized prior to the IPO because the IPO was not considered probable.

A summary of the Incentive Unit activity for the six months ended June 30, 2019 is as follows:

 
 
Incentive Units
(In thousands)
 
Number of Incentive Units
 
Grant-date fair value
Outstanding—January 1, 2019
 
3,272

 
$
1.49

Vested
 
(2,845
)
 
0.71

Outstanding—June 30, 2019
 
427

 
$
6.67


A summary of the Incentive Unit activity for the six months ended June 30, 2018 is as follows:
 
 
Incentive Units
(In thousands)
 
Number of Incentive Units
 
Grant-date fair value
Outstanding—January 1, 2018
 
2,813

 
$
0.46

Vested
 

 

Outstanding—June 30, 2018
 
2,813

 
$
0.46



Brigham LLC used a third-party valuation specialist to assist management in its estimation of the grant-date fair value of the Incentive Units on the respective grant dates during 2013, 2015 and 2018. Brigham LLC used the Black-Scholes option pricing valuation model with the following weighted-average assumptions:
 
 
Incentive Units
 
 
2018 Awards
 
2015 Awards
 
2013 Awards
Expected volatility
 
28
%
 
33
%
 
40
%
Expected dividend yield
 

 

 

Expected term (in years)
 
0.7

 
3.7

 
6.2

Risk-free interest rates
 
2.45
%
 
1.07
%
 
0.94
%
Weighted-average grant date fair value per Incentive Unit
 
$
7.75

 
$
0.03

 
$
1.51


Long Term Incentive Plan

In connection with the IPO, Brigham Minerals adopted the Brigham Minerals, Inc. 2019 Long Term Incentive Plan (“LTIP”) for employees, consultants and directors who perform services for Brigham Minerals. The LTIP provides for issuance of awards based on shares of Class A common stock. Brigham Minerals has issued RSAs, RSUs and PSUs under the LTIP. The shares to be delivered under the LTIP shall be made available from (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by Brigham Minerals including shares purchased on the open market. A total of 6,599,560 shares of Class A common stock have been authorized for issuance under the LTIP. At June 30, 20194,934,934 shares of Class A common stock were available for future grants. Brigham Minerals accounts for the awards granted under the LTIP as compensation cost measured at the fair value of the award on the date of grant.

18

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)



RSAs are grants of shares of Class A common stock subject to a risk of forfeiture and restrictions on transferability. The share-based compensation expense of such RSAs was determined using the closing price of Class A common stock on April 23, 2019, the date of grant, of $21.25. On April 23, 2019, 312,189 RSAs were granted and 152,742 RSAs vested immediately. The remaining unvested RSAs generally vest in one-third increments on each of April 23, 2020, 2021 and 2022 and are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to Brigham Minerals prior to the lapse of such restrictions. From April 23, 2019 to June 30, 2019, no RSAs were forfeited or converted. Brigham Minerals accounts for forfeitures as they occur.

RSUs represent the right to receive shares of Class A common stock at the end of the vesting period in an amount equal to the number of RSUs that vest. The RSUs that have been granted generally vest in one-third increments on each of December 31, 2019, 2020 and 2021 and are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to Brigham Minerals prior to the date the award vests. The share-based compensation expense of such RSUs was determined using the closing price on April 23, 2019, the date of grant, of $21.25 applied to the total number of 598,891 RSUs granted. Brigham Minerals accounts for forfeitures as they occur. During the three and six months ended June 30, 2019, no RSUs were forfeited, converted or vested.

PSUs represent the right to receive shares of Class A common stock on December 31, 2021. 753,546 PSUs (based on target) were granted on April 23, 2019. The terms and conditions of the PSUs allow for vesting of the awards ranging between 0% (or forfeiture) and 200% of target. The vesting level is calculated based on the actual total stockholder return achieved during the performance period. The fair value of such PSUs was determined using a Monte Carlo simulation and will be recognized over the applicable performance period. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award. Expected volatilities in the model were estimated using a historical period consistent with the performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. Using the assumptions in the table below, Brigham Minerals estimated the fair value of PSUs at the date of grant to be $20.36 and that 450,836 PSUs will be earned.

 
 
Performance-Based Restricted Stock Units
Expected dividend yield
 
8.1
%
Risk-free interest rate
 
2.3
%
Volatility
 
30.0
%

No PSUs were forfeited, converted or vested during the three and six months ended June 30, 2019.

Share-based compensation cost recorded for each type of share-based compensation award is presented in the table below.
(In thousands)
 
Share-Based Compensation Expense
Incentive Units (1) (3)
 
$
2,167

RSAs (2) (3)
 
3,456

RSUs (3)
 
1,246

PSUs (4)
 
636

Capitalized share-based compensation (5)
 
(1,010
)
Total share-based compensation expense
 
$
6,495

(1)
Includes $2.0 million recorded at IPO. No compensation expense was recorded prior to the IPO because the IPO was not considered probable.
(2)
Includes $3.2 million recorded at grant date, associated with 152,742 RSAs, which vested immediately.
(3)
Share-based compensation expense relating to Incentive Units, restricted stock awards and time-based restricted stock units with ratable vesting is recognized on a straight-line basis over the requisite service period for the entire award.
(4)
Share-based compensation expense relating to performance-based restricted stock units with cliff-vesting is recognized on a straight-line basis over the requisite service period for the entire award.
(5)
During the three and six months ended June 30, 2019, Brigham Minerals capitalized $1.0 million of the share-based compensation to unevaluated property on its balance sheet.

19

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)



The following table reflects the future share-based compensation cost to be recorded for the share-based compensation awards that were outstanding at June 30, 2019:

(In thousands)
 
Incentive Units
 
Restricted Stock Awards
 
Time-Based Restricted Stock Units
 
Performance-Based Restricted Stock Units
 
Total
2019
 
$
420

 
$
569

 
$
3,372

 
$
1,720

 
$
6,081

2020
 
828

 
1,129

 
4,217

 
3,412

 
$
9,586

2021
 
828

 
1,129

 
3,891

 
3,411

 
$
9,259

2022
 
618

 
351

 

 

 
$
969

Total
 
$
2,694

 
$
3,178

 
$
11,480

 
$
8,543

 
$
25,895


11. Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Brigham Resources, the Company’s predecessor, is a limited liability company that is not subject to U.S. federal income tax, but is subject to the Texas Margins Tax and state income taxes in Oklahoma, North Dakota, and Colorado. As part of the July 2018 restructuring, certain entities affiliated with Warburg Pincus contributed all of their respective interests in certain wholly owned “blocker” entities through which they held interests in Brigham Resources to Brigham Minerals in exchange for all of the outstanding shares of common stock of Brigham Minerals. On the date of the July 2018 restructuring, a corresponding “first day” tax charge of approximately $3.1 million was recorded to establish a net deferred tax liability for differences between the tax and book basis of the investment in Brigham Resources. The offset of the deferred tax liability was recorded to additional paid-in-capital.

Brigham Minerals is a corporation and is subject to U.S. federal income tax. In April 2019, Brigham Minerals completed the initial public offering of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. The tax implications of the July 2018 restructuring, initial public offering and the tax impact of the Company's status as a taxable corporation subject to U.S. federal income tax have been reflected in the accompanying condensed consolidated and combined financial statements. On IPO date, a corresponding tax benefit of approximately $13.7 million was recorded associated with the differences between the tax and book basis of the investment in Brigham Resources, LLC. The offset of the deferred tax asset was recorded to additional paid-in capital.

The effective combined U.S. federal and state income tax rate for the six months ended June 30, 2019 was 8.4%. During the three and six months ended June 30, 2019, the Company recognized an income tax expense of $0.1 million and $0.3 million, respectively. During the three and six months ended June 30, 2018, the income tax expense recognized was immaterial. Total income tax expense for the three and six months ended June 30, 2019 differed from amounts computed by applying the U.S. federal statutory tax rate of 21% due to the impact of the temporary equity, net income attributable to Predecessor, state taxes (net of the anticipated federal benefit), and percentage depletion in excess of basis.

12. Commitments and Contingencies
Commitments
Brigham Minerals leases office space under operating leases. Rent expense for the three months ended June 30, 2019 and 2018 was $0.2 million and $0.1 million, respectively. Rent expense for the six months ended June 30, 2019 and 2018 was $0.3 million and $0.1 million, respectively. Future minimum lease commitments under noncancelable operating leases at June 30,

20

BRIGHAM MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)


2019 are presented below:
(In thousands)
 
Commitment

Year
 
 
2019
 
$
299

2020
 
654

2021
 
672

2022
 
689

2023
 
474

2024
 
111

Total
 
$
2,899

Contingencies
Brigham Minerals may, from time to time, be a party to certain lawsuits and claims arising in the ordinary course of business. The outcome of such lawsuits and claims cannot be estimated with certainty and management may not be able to estimate the range of possible losses. Brigham Minerals records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated. Brigham Minerals had no reserves for contingencies at June 30, 2019 and December 31, 2018.

13. Related-Party Transactions

Brigham Land Management (“BLM”) provides us with land brokerage services. The services are provided at market prices and are periodically verified by third-party quotes. BLM is owned by Vince Brigham, an advisor to us and brother of Ben M. Brigham, our founder and Executive Chairman of our Board of Directors. For the six months ended June 30, 2019 and 2018, the amounts paid to BLM for land brokerage services were immaterial. At June 30, 2019 and December 31, 2018, the liabilities recorded for services performed by BLM during the respective periods were immaterial.

Brigham Exploration Company, partially owned by Ben M. Brigham, on occasion leases some of our acreage at market rates. In connection with such leases, we received payments of $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively. There were no payments received from Brigham Exploration Company in connection with such leases for the three and six months ended June 30, 2018.

14. Subsequent Events

On August 5, 2019, Brigham Minerals declared a dividend of $0.33 per Class A common stock payable on August 29, 2019, to unitholders of record at the close of business on August 22, 2019.

On July 15, 2019, the Company entered into a new office lease agreement for additional office spaces and termination of some of our existing office spaces. The new agreement replaces all our existing office lease agreements. See "Note 12 - Commitments and Contingencies" related to our rent commitment as of June 30, 2019. Future minimum lease commitments under the noncancelable operating lease related to the new office lease agreement are presented below (in thousands):
(In thousands)
 
Commitment
Year
 
 
2019
 
$
299

2020
 
970

2021
 
1,274

2022
 
1,312

2023
 
1,349

Thereafter
 
5,021

Total
 
$
10,225





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Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the audited consolidated financial statements of Brigham Resources, our predecessor for accounting purposes, included in the Registration Statement on Form S-1, as amended, filed with SEC and declared effective on April 17, 2019 (the "IPO registration statement"), as well as the accompanying unaudited condensed consolidated and combined financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). In connection with our 2018 corporate restructuring and IPO, we became the managing member of Brigham Minerals Holdings, LLC (“Brigham LLC”) and are indirectly responsible for all operational, management and administrative decisions related to Brigham LLC and its operating subsidiaries’ business. Unless otherwise indicated, the historical financial information relating to periods prior to our initial public offering, which we completed in April 2019 (the "IPO" or the "Offering") in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" reflects only the historical financial results of our predecessor, excluding the historical results and operations of Brigham Operating, and does not give effect to the Offering. Unless the context otherwise requires, references in this section to the "Company," "we," "us," "our" or like terms, (i) for periods prior to completion of the IPO, refer to the assets and operations (including reserves, production and acreage) of Brigham Resources, excluding the historical results and operations of Brigham Operating, and (ii) for periods after completion of the IPO, refer to the assets and operations of Brigham Minerals and its subsidiaries.
The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGLs, production volumes, estimates of proved, probable and possible reserves, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed under the heading "Risk Factors" in our IPO registration statement and elsewhere in this Quarterly Report, particularly in “Cautionary Statement Regarding Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Brigham Minerals was formed to acquire and actively manage a portfolio of mineral and royalty interests in the core of what we view as the most active, highly economic, liquids-rich resource plays across the continental United States. Our primary business objective is to maximize risk-adjusted total return to our shareholders. As of June 30, 2019, we owned 74,100 net royalty acres across 39 counties within the Permian Basin in West Texas and New Mexico, the SCOOP/STACK plays in the Anadarko Basin of Oklahoma, the Denver-Julesburg ("DJ") Basin in Colorado and Wyoming and the Williston Basin in North Dakota.
Financial Highlights:
Our royalty revenues comprised of crude oil, natural gas and NGL sales increased 59%, to $23.0 million, for the three months ended June 30, 2019 and 54%, to $40.6 million, for the six months ended June 30, 2019 as compared to the corresponding periods from the prior year.
Our production volumes increased by 82%, to 6,768 Boe per day (71% liquids, 56% oil), for the three months ended June 30, 2019 and 74%, to 6,079 Boe per day (71% liquids, 56% oil), for the six months ended June 30, 2019 as compared to the corresponding periods from the prior year.
Our net loss for the three months ended June 30, 2019 was $3.2 million and our net income for the six months ended June 30, 2019 of $0.8 million, compared to net income for the three and six months ended June 30, 2018 of $9.4 million and $17.5 million, respectively. Adjusted EBITDA increased by 33%, to $18.3 million, for the three months ended June 30, 2019 and 31%, to $32.1 million, for the six months ended June 30, 2019 as compared to the corresponding periods from the prior year. Adjusted EBITDA ex lease bonus increased by 47%, to $16.8 million, for the three months ended June 30, 2019 and 50%, to $30.0 million, for the six months ended June 30, 2019 as compared to the corresponding periods from the prior year. Adjusted EBITDA and Adjusted EBITDA ex lease bonus are non-GAAP financial measures. For a definition of Adjusted EBITDA and Adjusted EBITDA ex lease bonus and a reconciliation to our most directly comparable measure calculated and presented in accordance with GAAP, please read "How We Evaluate Our Operations–Adjusted EBITDA and Adjusted EBITDA Ex Lease Bonus."

22


On August 5, 2019, Brigham Minerals declared a dividend of $0.33 per Class A common stock payable on August 29, 2019 to unitholders of record at the close of business on August 22, 2019.
Corporate Highlights:
In April 2019, we completed our initial public offering of 16,675,000 shares of Class A common stock, which included 2,175,000 shares of Class A common stock issued pursuant to the underwriters' full exercise of their option to purchase additional shares, at a price to the public of $18.00 per share. This resulted in net proceeds to us of approximately $274.9 million, after deducting underwriting discounts and offering fees.
We used a portion of the net proceeds from the Offering to fully repay the outstanding balance under our Owl Rock credit facility which was $200.0 million as of May 7, 2019. See "Note 1 - Business and Basis of Presentation" to the condensed consolidated and combined financial statements contained elsewhere in this Quarterly Report.
In May 2019, we entered into a credit agreement with a bank syndicate, including Wells Fargo Bank as our administrative agent, for a new revolving credit facility with an initial borrowing base of $120 million, which is subject to redetermination on August 1, 2019 and November 1, 2019.

Operational Update

Mineral and Royalty Interest Ownership Update
During the three months ended June 30, 2019, the Company completed 46 transactions acquiring 2,700 net royalty acres (standardized to a 1/8th royalty interest) for $40.0 million, in the Permian, SCOOP/STACK, and Williston Basins. The acquired minerals are expected to deliver near-term production with with 44 gross DUCs (0.1 net DUCs) and 30 gross permits (0.1 net permits). As of June 30, 2019, the Company owned roughly 74,100 net royalty acres, encompassing 12,085 gross (104 net) undeveloped horizontal locations, across 39 counties in what the Company views as the core of the Permian Basin in West Texas and New Mexico, the SCOOP/STACK plays in the Anadarko Basin of Oklahoma, the Denver-Julesburg (“DJ”) Basin in Colorado and Wyoming and the Williston Basin in North Dakota.
The table below summarizes the Company’s mineral and royalty interest ownership as of the dates indicated and changes in such ownership on a quarter over quarter ("Q/Q") and year-to-date ("YTD") basis.
 
 
Delaware
Midland
SCOOP
STACK
DJ
Williston
Other
Total
Net Royalty Acres
 
 
 
 
 
 
 
 
 
June 30, 2019
 
21,750
3,500
10,250
10,050
15,450
6,900
6,200
74,100
March 31, 2019
 
20,550
3,200
9,750
9,700
15,450
6,850
6,000
71,500
Acres Added Q/Q
 
1,300
300
500
350
50
200
2,700
Acres Sold Q/Q
 
(100)
(100)
% Growth Q/Q
 
6%
9%
5%
4%
—%
1%
3%
4%
December 31, 2018
 
19,200
3,200
8,700
9,700
15,400
6,800
5,800
68,800
Acres Added YTD 2019
 
2,650
300
1,550
350
50
100
400
5,400
Acres Sold YTD 2019
 
(100)